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The Impact of State Income Taxes on Low-Income Families in 2009

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Summary

State income taxes affect working-poor families in different ways. Some states’ tax codes help working-poor families lift themselves out of poverty. Others push them deeper into poverty. An analysis of state income tax systems for the 2009 tax year shows that:

In 13 of the 42 states that levy income taxes, two-parent families of four with incomes below the federal poverty line are liable for income tax;

In 11 states, poor single-parent families of three pay income tax;

And 25 states collect taxes from families of four with incomes just above the poverty line.

These findings are based on the federal poverty line for 2009: $21,947 for a family of four and $17,102 for a family of three.

Some states levy income tax on working families in severe poverty. Five states — Alabama,Georgia, Illinois, Montana, andOhio — tax the income of two-parent families of four earning less than three-quarters of the poverty line ($16,460). And three states — Alabama, Georgia, and Montana — tax the income of one-parent families of three earning less than three-quarters of the poverty line ($12,827).

In some states, families living in poverty face yearly income tax bills of several hundred dollars. In 2009, a two-parent family of four with income at the poverty line owed $468 in Alabama, $266 in Hawaii, $225 in Iowa, and $225 in Montana. Such amounts can make a big difference to a family struggling to escape poverty. Other states levying tax of more than $150 on families with poverty-level incomes were Georgia,Illinois, Ohio, and Oregon.

At the other end of the spectrum, a growing number of states offer significant refunds to low-income working families, primarily through Earned Income Tax Credits (EITCs). Twenty-one states use the tax code to reduce poverty for families with two children and minimum-wage income, for example.

Over the last two decades, states have made significant progress in reducing the tax liabilities of low-income families. In 1991, over half of the states with an income tax levied taxes on two-parent, two-child families living with poverty-level income, whereas in 2009 fewer than one-third of these states levied taxes on such families.

There was important progress in 2009, as states implemented changes – mostly enacted before the recession – that reduced taxes for low-income working families. The number of states levying income tax on working-poor families of four declined from 16 states in 2008 to 13 states in 2009. And the taxes levied by those remaining 13 states also declined.

In the face of state fiscal problems, however, this progress has ground to a halt. Since the beginning of 2009, few states have enacted reforms to improve the tax treatment of low-income workers.

To some degree the slowing of progress has been inevitable. States’ balanced budget requirements and current dire fiscal conditions have restricted states’ ability to reduce taxes on poor families.

Nonetheless, doing so should remain a priority for states that still have such taxes. Taxing the incomes of working-poor families runs counter to the efforts of policymakers across the political spectrum to help families work their way out of poverty. The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well.

Eliminating state income taxes on working families with poverty-level incomes gives a boost in take-home pay that helps offset higher child care and transportation costs that families incur as they strive to become economically self-sufficient. In other words, relieving state income taxes on poor families can make a meaningful contribution toward “making work pay.”

Of particular concern, a number of states are considering budget balancing measures that would roll back targeted tax reductions for the working poor. New Jersey’s governor and Washington, D.C.’s mayor have proposed decreases in the EITC. Georgia’s legislature is considering eliminating the refundable portion of the state’s low-income credit. Virginia enacted a budget that prevents an increase in the federal EITC from flowing through to the state’s EITC. These changes would increase taxes on hundreds of thousands of poor and near-poor working families with children.

States have other gap-closing options at their disposal that do not reverse the progress they have made in mitigating the tax liabilities of low-income workers and that would be better for the economy.

Given these alternatives, states need not dismantle efforts to reduce poverty and encourage work. Rather they should preserve these efforts and build upon them when their fiscal situation improves.

Methodology

This analysis assesses the impact of each state’s income tax in 2009 on poor and near-poor families with children. Broad-based income taxes are levied in 41 states and the District of Columbia. Two family types are used in assessing taxes’ impact: a married couple with two dependent children, and a single parent with two dependent children.[1] The analysis focuses on two measures: the lowest income level at which state residents are required to pay income tax, and the tax due at various income levels. [2]

A benchmark used throughout this analysis is the federal poverty line — the annual estimate of the minimum financial resources required for a family to meet basic needs. The Census Bureau’s poverty line for 2009 was $17,102 for a family of three and $21,947 for a family of four. [3] It is generally acknowledged that attaining self-sufficiency requires an income level substantially higher than the federal poverty line, so if anything this analysis understates the extent to which state income tax provisions might impede the ability of poor families to move up the economic ladder.

Many States Continue to Levy Substantial Income Taxes on Poor Families

The Tax Threshold

One important measure of the impact of taxes on poor families is the income tax threshold — the point below which a family owes no income tax. Tables 1A and 1B show the thresholds for a single parent with two children and for a married couple with two children, respectively.

In 11 states, the threshold is too low to exempt from income taxes a single-parent family of three at the $17,102 poverty line. In the remaining 31 states with income taxes, the threshold is above the poverty line, so families at that level of earnings pay no income tax or receive a refund.

In 13 states, the threshold is too low to exempt from income taxes a two-parent family of four at the $21,947 poverty line. The remaining 29 states with income taxes have thresholds above the poverty line (See Figure 1).

Five states — Alabama, Georgia, Illinois, Montana, and Ohio — tax families of three or four in severe poverty, meaning those earning less than three-quarters of the federal poverty line. That income level in 2009 was $12,827 for a family of three and $16,460 for a family of four.

While most states set income tax thresholds high enough to exempt from taxes a family of three where the employed person works full-time at the minimum wage, eight do require such a family to pay: Alabama, Georgia, Hawaii, Illinois, Missouri, Montana, Ohio, and Oregon.

New York has the nation’s highest threshold for 2009. There is no income tax on a family of three making under $34,600 or a family of four making under $40,300. Those levels are well above the poverty lines for families of those sizes.

Taxes and Tax Credits for Poor Families

Several states charge those living in poverty several hundred dollars a year in income taxes — a substantial amount for a struggling family. Tables 2A, 2B, 3A, and 3B show these amounts.

The tax bill for a poverty-line family of four exceeds $150 in eight states: Alabama, Georgia, Hawaii, Illinois, Iowa, Montana, Ohio, and Oregon.

As noted above, a majority of states do not tax families with poverty-level income.

There are 17 states that not only avoid taxing poor families but also offer tax credits that provide refunds to families of three or four with income at the poverty line. These are the 17 states shown at the bottom of Table 2A. These credits act as a wage supplement and income support, helping to assist families’ work efforts and reduce poverty. The amount of refund for families with income at the poverty line is as high as $1,940 for a family of four in New York.

In addition to those 17, there are four other states that tax some or all families with incomes at the poverty line, but provide refundable credits to families with two children and full-time, minimum-wage income.

Taxes on Near-Poor Families

Studies have consistently found that the basic costs of living — food, clothing, housing, transportation, and health care — in most parts of the country exceed the federal poverty line, sometimes substantially.[4] So, many families with earnings above the official federal poverty line still have considerable difficulty making ends meet.

In recognition of the challenges faced by families with incomes somewhat above the poverty line, the federal government and state governments have set eligibility ceilings for some programs, such as energy assistance, school lunch subsidies, and in many states health care subsidies, at 125 percent of the poverty line ($21,378 for a family of three, $27,434 for a family of four in 2009) or above.

A majority of states, however, continue to levy income tax on families with incomes at 125 percent of the poverty line. Tables 4A and 4B show these amounts.

In 25 states, two-parent families of four earning 125 percent of the poverty level are taxed, with the bill exceeding $500 in eight states: Alabama, Arkansas, Georgia, Hawaii, Iowa, Kentucky, Oregon, and West Virginia.

Twenty-two states tax families of three with income at 125 percent of the poverty line.

How Can States Reduce Income Taxes on Poor Families?

States employ a variety of mechanisms to reduce income taxes on poor families. Nearly all states offer personal exemptions and/or standard deductions, which reduce the amount of income subject to taxation for all families, including those with low incomes. In a number of states, these provisions by themselves are sufficient to lift the income tax threshold above the poverty line. In addition, many states have enacted provisions targeted to low- and moderate-income families. To date, 24 states have established an Earned Income Tax Credit based on the federal EITC, which is a mechanism for reducing the tax obligation of working-poor families, mostly those with children.[5]

Why Does This Report Focus on the Income Tax — A Tax That Is Arguably the Fairest State Tax?

In most states, poor families pay more in consumption taxes, such as sales and gasoline taxes, than they do in income taxes. They also pay substantial amounts of property taxes and other taxes and fees. Why then does this report focus on the impact of state income taxes on poor families?

First, because the income tax is a major component of most state tax systems — making up 36 percent of total state tax revenue nationally — the design of a state’s income tax has a major effect on the overall fairness of the state’s tax system.

Second, it is administratively easier for states to target income tax cuts to poor families than it is to cut sales or property taxes on those families. That is because information on a taxpayer’s income is available at the time the income tax is levied. Sales tax, on the other hand, is collected by merchants from consumers with no knowledge of income level; and property taxes are passed through from landlords to renters. As a result, the most significant low-income tax relief at the state level in the past decade has come by means of the income tax.

Third, families trying to work their way out of poverty often face an effective tax on every additional dollar earned in the form of lost benefits such as income support, food stamps, Medicaid, or housing assistance. Income taxes on poor families can exacerbate this problem and send a negative message about the extent to which increased earnings will improve family well-being.

This report emphasizes that many states’ income taxes leave considerable room for improvement. But it is important to recognize that a state tax system that includes an income tax — even one with a relatively low income threshold — typically serves low-income families better than a state tax system that does not include an income tax at all. The reason is that most states’ income taxes, even those that tax the poor, are progressive; that is, income tax payments represent a smaller share of income for low-income families than for high-income families. By contrast, the other primary source of tax revenue for states, the sales tax, is regressive, consuming a larger share of the income of low-income families than of high-income families.

States that rely heavily on non-income taxes tend to have higher overall taxes on the poor than do other states. Seven states — Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not appear in this report because they do not levy income taxes. Their heavy reliance on the sales tax renders their tax systems very burdensome for low-income families. Conversely, two states with income taxes but no general sales tax — Montana and Oregon — are shown in this report to impose above-average income tax burdens on the poor, despite some recent improvement. While there is room for further improvement in this aspect of their income taxes, these two states still have less regressive tax systems overall than the average state because they do not levy general sales taxes.

Some states offer other types of low-income tax credits, such as New Mexico’s Low-Income Comprehensive Tax Rebate. Finally, a few states have a “no-tax floor,” which sets a dollar level below which families owe no tax but does not affect tax liability for families above that level. A $20,000 no-tax floor, for example, means that a family making below that amount owes no taxes, but once income surpasses that level the tax is owed on all taxable income from one dollar up.

Most States Have Made Substantial Progress Since the Early 1990s, but Others Lag Severely Behind

Since the 1990s, Most States’ Income-Tax Treatment of the Poor Has Improved Greatly

While a substantial number of states continue to tax the poor, since the early 1990s, states generally have reduced the amount of tax owed by working-poor families. From 1991 to 2009, the number of states levying income tax on poor, two-parent families of four decreased to 13 from 24. Over that same span, the average of state tax thresholds increased to 120 percent of the poverty line from 84 percent. And many of the 13 states that still tax poor families of four have reduced the taxes levied. From 1994 to 2009, the average tax levied fell by 42 percent, after adjusting for inflation. Tables 5, and 6, and 7 show these changes over time.

From 2008 to 2009 alone, there was significant progress, based largely on measures enacted prior to the recession. Three states that previously levied income tax on poor families of four — Kentucky, North Carolina and West Virginia — no longer do so. And average taxes paid by families with incomes at the poverty line in the 13 states that still tax the poor declined by 18 percent.[6] Specific policy changes for 2009 include:

Indiana increased its EITC from 6 percent to 9 percent of the federal credit. This change raised the state’s threshold for single-parent families of three above the poverty line, and significantly reduced the tax liabilities of poor, two-parent families of four.

Michigan increased its EITC from 10 to 20 percent of the federal credit. This increase boosted the size of the rebate that the state provides to poor families by over $200.

New Jersey increased its EITC from 22.5 percent to 25 percent of the federal credit, increasing the state’s threshold and the size of the tax rebate that the state provides to poor families.

North Carolina increased its EITC from 3.5 percent to 5 percent of the federal credit, lifting the state’s threshold above the poverty line for a family of four.

Oklahoma continued to phase in an increase in its standard deduction, lifting the state’s tax threshold further above the poverty line.

A Few States Tax the Incomes of the Poor More Heavily than in the Early 1990s

A smaller number of states stand out for their lack of progress between the early 1990s and 2009 in reducing income taxes on the poor and near-poor.

In California,Connecticut, Mississippi, and Ohio, the income tax threshold has fallen compared to the poverty line since 1991. In Connecticut, the threshold has fallen over that time to 110 percent of the poverty line from 173 percent.

In four states — Georgia, Iowa, Mississippi, and Ohio — the income tax on families of four with poverty-level incomes has risen since 1994 even after accounting for inflation. As Table 6 shows, the inflation-adjusted increase was 30 percent in Georgia and 3 percent in Ohio. In Iowa, such families’ tax liability increased to $225 from zero — the highest dollar increase in any state. In each of these states, the reason for the tax increase is that personal exemptions, credits, or other features designed to protect the incomes of low-income families from taxation have eroded due to inflation.

Progress Is Threatened in 2010

States’ fiscal troubles are significantly slowing their progress in reducing the tax liabilities of poor families. Faced with budget deficits, few states since 2009 have revised their tax systems to improve their tax treatment of low income families.

Beyond limiting new measures to reduce the tax liabilities of poor families, fiscal problems have prompted some states to consider measures that increase income taxes for poor and near-poor families. For example:

Georgia’s legislature is considering eliminating the refundable portion of the state’s Low Income Credit. Under this proposal, a low-income taxpayer would not be able to claim the portion of the credit that exceeds his or her tax liability. Had this proposal been in effect in 2009, a two-parent, two-child family with income at half the federal poverty line ($10,974) would have lost its eligibility for a $32 tax credit.

New Jersey’s governor has proposed cutting the state’s earned income tax credit from 25 to 20 percent of the federal credit. Had this occurred in 2009, a family of four with income at the poverty line would have lost almost $250.

Virginia enacted a budget that requires that, in tax year 2010, families compute their state EITC based not on the current federal EITC but rather on the EITC as it existed under pre-2009 federal law. Had this change taken effect in 2009, a two-parent family with three children with income at 125 percent of the federal poverty line would have paid $205 in additional income taxes.

Washington D.C.’s mayor has proposed reducing the city’s EITC from 40 to 39 percent of the federal credit. Had the District’s EITC been 39 percent of the federal credit in 2009, a family of four with income at the poverty line would have lost $49.

These measures would increase poverty and reduce the after-tax incomes of working families already hit hard by the recession. As a result, they would be more harmful to states’ economies than other budget-balancing measures. This is because lower-income people spend nearly all of the money they make, mainly on necessities. So for every dollar they lose, the total amount of spending in the economy drops by around a dollar. That puts more jobs at risk — such as at stores where low-income people shop — and weakens a recovery. By contrast, high-income people are generally able to save part of any extra income they receive. So for every dollar they lose in income, total spending drops by less than a dollar, say, 90 cents. Thus, tax increases that mostly affect higher-income families and corporations have less of an impact on aggregate demand and are better for the economy and jobs.[7]

Conclusion

Too many states continue to tax the income of poor families and in some cases, the poorest. Over time, states have made significant progress in improving the tax treatment of these families. In 2009, however, that progress slowed significantly, as fiscal problems constrained states’ ability to advance targeted tax reductions. To address budget deficits, some states have proposed or enacted tax policy changes that would reduce after-tax incomes for the working poor. This approach to budget balance is misguided. States have other gap-closing options at their disposal that do not reverse the progress they have made in mitigating the tax liabilities of low-income workers and would be better for the economy. Despite their fiscal troubles, states should prioritize preserving this progress and build upon it when their budget outlook improves.

Table 1A: 2009 State Income Tax Thresholds, Single-Parent Family of Three

Rank

State

Threshold

1

Alabama

$9,800

2

Montana

9,900

3

Georgia

12,700

4

Hawaii

13,800

5

Illinois

14,400

5

Mississippi

14,400

5

Missouri

14,400

8

Ohio

14,700

9

Arkansas

15,200

10

Oregon

16,700

11

Louisiana

16,800

Poverty Line: $17,102

12

Indiana

18,300

12

Kentucky

18,300

12

West Virginia

18,300

15

Iowa

18,800

16

North Carolina

19,000

17

Connecticut

19,100

18

Colorado

19,300

19

Idaho

19,400

20

North Dakota

19,600

21

Utah

19,700

22

Arizona

20,100

23

Michigan

22,300

23

Oklahoma

22,300

25

Virginia

23,000

25

Wisconsin

23,000

27

Maine

23,900

28

Pennsylvania

25,500

29

South Carolina

25,700

30

Massachusetts

26,400

31

Delaware

26,500

32

California

26,600

33

Kansas

27,100

34

Nebraska

27,300

35

District of Columbia

29,400

36

Rhode Island

31,600

37

New Jersey

32,300

38

Maryland

32,400

39

Minnesota

33,100

39

Vermont

33,100

41

New Mexico

33,800

42

New York

34,600

Average Threshold 2009

$22,000

Amount Above Poverty Line

$4,898

Note: A threshold is the lowest income level at which a family has state income tax liability. In this table thresholds are rounded to the nearest $100. The 2009 poverty line is a Census Bureau estimate based on the actual 2008 line adjusted for inflation. The threshold calculations include earned income tax credits, other general tax credits, exemptions, and standard deductions. Credits that are intended to offset the effects of taxes other than the income tax or that are not available to all low-income families are not taken into account. Source: Center on Budget and Policy Priorities

Note: A threshold is the lowest income level at which a family has state income tax liability. In this table thresholds are rounded to the nearest $100. The 2009 poverty line is a Census Bureau estimate based on the actual 2008 line adjusted for inflation. The threshold calculations include earned income tax credits, other general tax credits, exemptions, and standard deductions. Credits that are intended to offset the effects of taxes other than the income tax or that are not available to all low-income families are not taken into account. Source: Center on Budget and Policy Priorities

Table 2A: 2009 State Income Tax at Poverty Line, Single-Parent Family of Three

Rank

State

Income

Tax

1

Alabama

$17,102

$333

2

Hawaii

17,102

211

3

Arkansas

17,102

205

4

Montana

17,102

151

5

Georgia

17,102

141

6

Ohio

17,102

94

7

Illinois

17,102

89

8

Mississippi

17,102

81

9

Missouri

17,102

56

10

Oregon

17,102

34

11

Louisiana

17,102

19

12

Arizona

17,102

0

12

California

17,102

0

12

Colorado

17,102

0

12

Connecticut

17,102

0

12

Delaware

17,102

0

12

Idaho

17,102

0

12

Kentucky

17,102

0

12

Maine

17,102

0

12

North Dakota

17,102

0

12

Pennsylvania

17,102

0

12

South Carolina

17,102

0

12

Utah

17,102

0

12

Virginia

17,102

0

12

West Virginia

17,102

0

26

Indiana

17,102

(62)

27

North Carolina

17,102

(131)

28

Iowa

17,102

(179)

29

Rhode Island

17,102

(183)

30

Oklahoma

17,102

(244)

31

Michigan

17,102

(441)

32

Nebraska

17,102

(488)

33

Wisconsin

17,102

(515)

34

New Mexico

17,102

(548)

35

Kansas

17,102

(703)

36

Massachusetts

17,102

(732)

37

Maryland

17,102

(1,058)

38

New Jersey

17,102

(1,220)

39

Minnesota

17,102

(1,257)

40

Vermont

17,102

(1,562)

41

District of Columbia

17,102

(1,695)

42

New York

17,102

(1,939)

Source: Center on Budget and Policy Priorities

Table 2B: 2009 State Income Tax at Poverty Line, Two-Parent Family of Four

Rank

State

Income

Tax

1

Alabama

$21,947

$468

2

Hawaii

21,947

266

3

Iowa

21,947

225

3

Montana

21,947

225

5

Georgia

21,947

218

6

Oregon

21,947

200

7

Illinois

21,947

172

8

Ohio

21,947

159

9

Missouri

21,947

89

10

Arkansas

21,947

83

11

Mississippi

21,947

70

12

Indiana

21,947

65

13

Louisiana

21,947

21

14

Arizona

21,947

0

14

California

21,947

0

14

Colorado

21,947

0

14

Connecticut

21,947

0

14

Delaware

21,947

0

14

Idaho

21,947

0

14

Kentucky

21,947

0

14

Maine

21,947

0

14

North Dakota

21,947

0

14

Pennsylvania

21,947

0

14

South Carolina

21,947

0

14

Utah

21,947

0

14

Virginia

21,947

0

14

West Virginia

21,947

0

28

North Carolina

21,947

(91)

29

Rhode Island

21,947

(185)

30

Oklahoma

21,947

(198)

31

Michigan

21,947

(395)

32

Nebraska

21,947

(492)

33

New Mexico

21,947

(527)

34

Wisconsin

21,947

(567)

35

Kansas

21,947

(595)

36

Massachusetts

21,947

(618)

37

New Jersey

21,947

(994)

38

Maryland

21,947

(1,004)

39

District of Columbia

21,947

(1,496)

40

Vermont

21,947

(1,575)

41

Minnesota

21,947

(1,759)

42

New York

21,947

(1,940)

Source: Center on Budget and Policy Priorities

Table 3A: 2009 State Income Tax at Minimum Wage, Single-Parent Family of Three

Rank

State

Income*

Tax

1

Alabama

$14,231

$188

2

Hawaii**

15,080

98

3

Montana**

14,655

74

4

Oregon**

17,472

66

5

Illinois**

16,380

60

6

Ohio**

15,184

46

7

Georgia

14,231

34

8

Missouri**

14,837

8

9

Arizona**

15,080

0

9

Arkansas

14,231

0

9

California**

16,640

0

9

Colorado**

15,142

0

9

Connecticut**

16,640

0

9

Delaware**

14,959

0

9

Idaho

14,231

0

9

Kentucky**

14,352

0

9

Maine**

15,210

0

9

Mississippi

14,231

0

9

North Dakota

14,231

0

9

Pennsylvania**

14,959

0

9

South Carolina

14,231

0

9

Utah

14,231

0

9

Virginia

14,231

0

9

West Virginia

14,231

0

25

Louisiana

14,231

(106)

26

Indiana

14,231

(173)

27

Rhode Island**

15,392

(189)

28

North Carolina

14,231

(251)

28

Oklahoma

14,231

(251)

30

Iowa**

15,080

(352)

31

Nebraska

14,231

(503)

32

Michigan**

15,392

(545)

33

New Mexico**

15,600

(573)

34

Wisconsin

14,231

(701)

35

Massachusetts**

16,640

(748)

36

Kansas

14,231

(830)

37

Maryland

14,231

(1,218)

38

Minnesota

14,231

(1,257)

38

New Jersey**

14,959

(1,257)

40

Vermont**

16,765

(1,585)

41

District of Columbia**

16,311

(1,786)

42

New York**

14,959

(2,001)

* Income reflects full-time, year-round minimum wage earnings for one worker (52 weeks, 40 hours/week). ** These states had a minimum wage higher than the federal minimum wage in all or part of 2009. Source: Center on Budget and Policy Priorities

Table 3B: 2009 State Income Tax at Minimum Wage, Two-Parent Family of Four

Rank

State

Income*

Tax

1

Alabama

$14,231

$50

2

Montana**

14,655

28

3

Arizona**

15,080

0

3

Arkansas

14,231

0

3

California**

16,640

0

3

Colorado**

15,142

0

3

Connecticut**

16,640

0

3

Delaware**

14,959

0

3

Idaho

14,231

0

3

Illinois**

16,380

0

3

Kentucky**

14,352

0

3

Maine**

15,210

0

3

Mississippi

14,231

0

3

Missouri**

14,837

0

3

North Dakota

14,231

0

3

Ohio**

15,184

0

3

Pennsylvania**

14,959

0

3

South Carolina

14,231

0

3

Utah

14,231

0

3

Virginia

14,231

0

3

West Virginia

14,231

0

22

Georgia

14,231

(32)

23

Hawaii**

15,080

(89)

24

Louisiana

14,231

(176)

25

Oregon**

17,472

(179)

26

Rhode Island**

15,392

(189)

27

Indiana

14,231

(207)

28

North Carolina

14,231

(251)

28

Oklahoma

14,231

(251)

30

Iowa**

15,080

(352)

31

Nebraska

14,231

(503)

32

New Mexico**

15,600

(588)

33

Michigan**

15,392

(701)

34

Wisconsin

14,231

(704)

35

Massachusetts**

16,640

(754)

36

Kansas

14,231

(855)

37

Maryland

14,231

(1,257)

37

Minnesota

14,231

(1,257)

37

New Jersey**

14,959

(1,257)

40

Vermont**

16,765

(1,609)

41

District of Columbia**

16,311

(1,786)

42

New York**

14,959

(2,100)

* Income reflects full-time, year-round minimum wage earnings for one worker (52 weeks, 40 hours/week). ** These states had a minimum wage higher than the federal minimum wage in all or part of 2009. Source: Center on Budget and Policy Priorities

Table 4A: 2009 State Income Tax at 125% of Poverty Line, Single-Parent Family of Three

Rank

State

Income

Tax

1

Alabama

$21,378

$608

2

Arkansas

21,378

525

3

West Virginia

21,378

514

4

Hawaii

21,378

483

5

Oregon

21,378

449

6

Kentucky

21,378

433

7

Georgia

21,378

361

8

Montana

21,378

306

9

Illinois

21,378

262

10

Mississippi

21,378

229

11

Iowa

21,378

225

12

Louisiana

21,378

221

13

Missouri

21,378

218

14

Ohio

21,378

210

15

North Carolina

21,378

169

16

Indiana

21,378

164

17

Utah

21,378

109

18

Colorado

21,378

95

19

Arizona

21,378

84

20

North Dakota

21,378

38

21

Idaho

21,378

33

22

Connecticut

21,378

18

23

California

21,378

0

23

Delaware

21,378

0

23

Maine

21,378

0

23

Pennsylvania

21,378

0

23

South Carolina

21,378

0

23

Virginia

21,378

0

29

Oklahoma

21,378

(51)

30

Michigan

21,378

(76)

31

Rhode Island

21,378

(138)

32

Wisconsin

21,378

(151)

33

Nebraska

21,378

(333)

34

Massachusetts

21,378

(400)

35

Kansas

21,378

(401)

36

New Mexico

21,378

(423)

37

Maryland

21,378

(641)

38

New Jersey

21,378

(753)

39

District of Columbia

21,378

(1,154)

40

Vermont

21,378

(1,202)

41

New York

21,378

(1,500)

42

Minnesota

21,378

(1,573)

Source: Center on Budget and Policy Priorities

Table 4B: 2009 State Income Tax at 125% of Poverty Line, Two-Parent Family of Four

Rank

State

Income

Tax

1

Kentucky

$27,434

$840

2

Alabama

27,434

838

3

Arkansas

27,434

768

4

Oregon

27,434

764

5

West Virginia

27,434

678

6

Iowa

27,434

645

7

Hawaii

27,434

570

8

Georgia

27,434

523

9

Montana

27,434

457

10

Illinois

27,434

395

11

Indiana

27,434

356

12

Missouri

27,434

341

13

Ohio

27,434

336

14

North Carolina

27,434

297

15

Mississippi

27,434

263

16

Louisiana

27,434

218

17

Arizona

27,434

186

18

Oklahoma

27,434

103

19

Michigan

27,434

75

20

Colorado

27,434

67

21

Utah

27,434

62

22

North Dakota

27,434

26

22

Connecticut

27,434

26

24

Idaho

27,434

23

25

Virginia

27,434

9

26

California

27,434

0

26

Delaware

27,434

0

26

Maine

27,434

0

26

Pennsylvania

27,434

0

26

South Carolina

27,434

0

31

Wisconsin

27,434

(101)

32

Rhode Island

27,434

(122)

33

Massachusetts

27,434

(171)

34

Kansas

27,434

(205)

35

Nebraska

27,434

(324)

36

New Mexico

27,434

(376)

37

Maryland

27,434

(489)

38

New Jersey

27,434

(618)

39

District of Columbia

27,434

(702)

40

Vermont

27,434

(1,153)

41

New York

27,434

(1,372)

42

Minnesota

27,434

(1,559)

Source: Center on Budget and Policy Priorities

Table 5: Tax Threshold for a Family of Four, 1991-2009

State

1991

2000

2007

2008

2009

Change 1991-2009

Change 2008-2009

Arizona

15,000

23,600

23,600

$23,600

$23,600

$8,600

$0

Arkansas

10,700

15,600

20,700

$21,300

$21,400

$10,700

$100

California

20,900

36,800

46,100

$48,300

$31,000

$10,100

-$17,300

Colorado

14,300

27,900

24,300

$24,900

$26,000

$11,700

$1,100

Connecticut

24,100

24,100

24,100

$24,100

$24,100

$0

$0

Delaware

8,600

20,300

29,300

$30,100

$31,700

$23,100

$1,600

District of Columbia

14,300

18,600

27,300

$30,200

$32,300

$18,000

$2,100

Georgia

9,000

15,300

15,900

$15,900

$15,900

$6,900

$0

Hawaii

6,300

11,000

14,000

$17,800

$17,800

$11,500

$0

Idaho

14,300

20,100

24,400

$25,000

$26,100

$11,800

$1,100

Illinois

4,000

14,000

15,900

$16,000

$16,400

$12,400

$400

Indiana

4,000

9,500

15,300

$15,500

$20,300

$16,300

$4,800

Iowa

9,000

17,400

18,700

$19,000

$19,200

$10,200

$200

Kansas

13,000

21,100

27,600

$28,500

$30,400

$17,400

$1,900

Kentucky

5,000

5,400

20,700

$21,200

$22,100

$17,100

$900

Louisiana

11,000

13,000

17,500

$20,300

$21,000

$10,000

$700

Maine

14,100

23,100

27,000

$27,800

$28,200

$14,100

$400

Maryland

15,800

25,200

32,000

$34,300

$36,800

$21,000

$2,500

Massachusetts

12,000

20,600

27,100

$28,100

$29,500

$17,500

$1,400

Michigan

8,400

12,800

14,800

$23,800

$26,600

$18,200

$2,800

Minnesota

15,500

26,800

34,500

$35,900

$37,400

$21,900

$1,500

Mississippi

15,900

19,600

19,600

$19,600

$19,600

$3,700

$0

Missouri

8,900

14,100

17,400

$17,600

$18,100

$9,200

$500

Montana

6,600

9,500

11,600

$12,200

$12,000

$5,400

-$200

Nebraska

14,300

18,900

30,200

$31,200

$33,200

$18,900

$2,000

New Jersey

5,000

20,000

30,800

$32,900

$36,300

$31,300

$3,400

New Mexico

14,300

21,000

35,900

$37,400

$39,500

$25,200

$2,100

New York

14,000

23,800

37,200

$38,300

$40,300

$26,300

$2,000

North Carolina

13,000

17,000

19,400

$21,800

$23,200

$10,200

$1,400

North Dakota

14,700

19,000

24,800

$25,400

$26,300

$11,600

$900

Ohio

10,500

12,700

15,800

$16,000

$16,200

$5,700

$200

Oklahoma

10,000

13,000

20,500

$23,500

$25,800

$15,800

$2,300

Oregon

10,100

14,800

18,000

$18,900

$19,800

$9,700

$900

Pennsylvania

9,800

28,000

32,000

$32,000

$32,000

$22,200

$0

Rhode Island

17,400

25,900

32,600

$34,000

$36,500

$19,100

$2,500

South Carolina

14,300

21,400

30,400

$31,100

$32,400

$18,100

$1,300

Utah

12,200

15,800

24,300

$25,300

$26,500

$14,300

$1,200

Vermont

17,400

26,800

34,400

$35,800

$38,700

$21,300

$2,900

Virginia

8,200

17,100

24,800

$25,800

$27,400

$19,200

$1,600

West Virginia

8,000

10,000

10,000

$21,200

$22,100

$14,100

$900

Wisconsin

14,400

20,700

26,000

$26,800

$28,600

$14,200

$1,800

Average

$11,736

$18,474

$24,026

$25,500

$26,307

$14,571

$807

Federal Poverty Line

$13,924

$17,603

$21,203

$22,017

$21,947

$8,023

-$70

Average as % Poverty Line

84%

105%

113%

116%

120%

36%

4%

Number Above Poverty Line

18

23

24

26

29

11

3

Number Below Poverty Line

24

19

18

16

13

-11

-3

Source: Center on Budget and Policy Priorities

Table 6: State Income Tax at the Poverty Line for Family of Four, 1994-2009 In States with Below-Poverty Thresholds in 2009

State

1994

2000

2007

2008

2009

Change 2008-09

Percent change after inflation 2008-09*

$ Change 1994-2009

Percent change after Inflation 1994-2009*

Montana

$211

$233

$217

$220

$225

5

3%

14

-26%

Mississippi

0

0

48

73

70

(3)

-4%

70

—

Georgia

116

55

184

223

218

(5)

-2%

102

30%

Ohio

107

113

161

168

159

(9)

-5%

52

3%

Arkansas

214

311

63

95

83

(12)

-12%

(131)

-73%

Alabama

348

443

423

483

468

(15)

-3%

120

-7%

Missouri

147

80

89

109

89

(20)

-18%

(58)

-58%

Louisiana

83

133

179

53

21

(32)

-60%

(62)

-83%

Illinois

334

145

201

214

172

(42)

-19%

(162)

-64%

Iowa

0

23

251

268

225

(43)

-16%

225

—

Oregon

331

278

325

311

200

(111)

-35%

(131)

-58%

Indiana

379

360

248

263

65

(198)

-75%

(314)

-88%

Hawaii

406

420

409

272

266

(6)

-2%

(140)

-55%

Average

$206

$200

$215

$212

$174

($38)

-18%

($32)

-42%

Notes: Dollar amounts shown are nominal amounts. * “Percent change after inflation” shows the percentage change adjusted for the 0.4 percent decrease in the cost of living from 2008 to 2009 and the 45 percent increase in the cost of living from 1994 to 2009, as measured by the Consumer Price Index. Source: Center on Budget and Policy Priorities

Table 7: Tax Threshold as a Percent of the Federal Poverty Line for a Family of Four, 1991-2009

State

1991

2001

2008

2009

% Point Change 1991-2009

% Point Change 2008-2009

Alabama

33%

25%

57%

57%

24%

0%

Arizona

108%

130%

107%

108%

0%

1%

Arkansas

77%

86%

97%

98%

21%

1%

California

150%

214%

219%

141%

-9%

-78%

Colorado

103%

159%

113%

118%

15%

5%

Connecticut

173%

133%

109%

110%

-63%

1%

Delaware

62%

112%

137%

144%

82%

7%

District of Columbia

103%

108%

137%

147%

44%

10%

Georgia

65%

85%

72%

72%

7%

0%

Hawaii

45%

62%

81%

81%

36%

0%

Idaho

103%

115%

114%

119%

16%

5%

Illinois

29%

79%

73%

75%

46%

2%

Indiana

29%

52%

70%

92%

63%

22%

Iowa

65%

97%

86%

87%

22%

1%

Kansas

93%

119%

129%

139%

46%

10%

Kentucky

36%

30%

96%

101%

65%

5%

Louisiana

79%

74%

92%

96%

17%

4%

Maine

101%

130%

126%

128%

27%

2%

Maryland

113%

145%

156%

168%

55%

12%

Massachusetts

86%

125%

128%

134%

48%

6%

Michigan

60%

71%

108%

121%

61%

13%

Minnesota

111%

153%

163%

170%

59%

7%

Mississippi

114%

108%

89%

89%

-25%

0%

Missouri

64%

79%

80%

82%

18%

2%

Montana

47%

54%

55%

55%

8%

0%

Nebraska

103%

108%

142%

151%

48%

9%

New Jersey

36%

110%

149%

165%

129%

16%

New Mexico

103%

118%

170%

180%

77%

10%

New York

101%

138%

174%

184%

83%

10%

North Carolina

93%

94%

99%

106%

13%

7%

North Dakota

106%

109%

115%

120%

14%

5%

Ohio

75.4%

69%

73%

74%

-1%

1%

Oklahoma

72%

74%

107%

118%

46%

11%

Oregon

73%

83%

86%

90%

17%

4%

Pennsylvania

70%

166%

145%

146%

76%

1%

Rhode Island

125%

148%

154%

166%

41%

12%

South Carolina

103%

122%

141%

148%

45%

7%

Utah

88%

90%

115%

121%

33%

6%

Vermont

125%

152%

163%

176%

51%

13%

Virginia

59%

98%

117%

125%

66%

8%

West Virginia

57%

55%

96%

101%

44%

5%

Wisconsin

103%

119%

122%

130%

27%

8%

Average

84%

105%

116%

120%

36%

4%

Source: Center on Budget and Policy Priorities

End Notes:

[1] The married couple is assumed to file a joint return on its federal and state tax forms, and the single parent is assumed to file as a Head of Household. A few states have different tax treatment for married couples with two workers, so each family is assumed to include one worker. For the few states where tax treatment depends on the age of children, the children are taken to be ages four and eleven.

[2] This report takes into account income tax provisions that are broadly available to low-income families and that are not intended to offset some other tax. It does not take into account tax credits or deductions that benefit only families with certain expenses; nor does it take into account provisions that are intended explicitly to offset taxes other than the income tax. For instance, it does not include the impact of tax provisions that are available only to families with out-of-pocket child care expenses or specific housing costs, because not all families face such costs. It also does not take into account sales tax credits, property tax “circuit breakers,” and similar provisions, because this analysis does not attempt to gauge the impact of those taxes — only of income taxes.

[6] To some degree, the improvement in state tax treatment of poverty-line families occurred because the federal poverty line, which is adjusted annually for the Consumer Price Index, declined in 2009. Many states’ tax parameters are also tied to the Consumer Price Index (directly or indirectly through the federal tax code), but with a one-year lag, so the parameters increased in 2009 because the CPI increased in 2008. For 2010, the reverse is likely to be true: the federal poverty line will probably increase to reflect the fact that prices are again rising, but many states’ tax parameters will not increase, so families with poverty-line income will pay more tax.

[7] This point – made by, among others, Nobel Prize winner Joseph Stiglitz of Columbia University and Peter Orszag, now the director of the Office of Management and Budget – is explained more fully in “Budget Cuts or Tax Increases at the State Level: Which is Preferable During a Recession?” Center on Budget and Policy Priorities, http://www.cbpp.org/cms/?fa=view&id=1032.